Turning Trump’s Tariff Threats into Opportunities

Key Point

Investors should brace for increased volatility in the coming weeks as markets react to these policy shifts. The uncertainty stems from the possibility that negotiations could either intensify the trade war temporarily or pave the way for a resolution that stabilizes investor sentiment.

Likely Resolution

We believe both the U.S. and Canada have incentives to avoid a prolonged trade conflict since extended tariff wars tend to harm both economies. In particular, the 10% tariff on Canadian energy imports will likely result in higher energy prices for U.S. consumers. Therefore, assuming Canada adjusts its stance in line with U.S. demands, we believe a mutually beneficial resolution is likely in the near term. The extension of tariffs on Mexico, announced this morning, serves as a strong testament to this possibility.

Takeaway

While short-term market swings are expected, a compromise could restore confidence and lead to the removal of tariffs, thereby setting the stage for a rebound in affected sectors.

Potential Picks

Assuming a resolution is reached, here are a few sectors and asset classes that may benefit:

1. Canadian Dollar (CAD)

The USD has strengthened against most global currencies since Trump took office. We believe a rollback of tariffs and a return to more stable trade relations could boost investor confidence, leading to a strengthening of the CAD. Monitor the CAD for early signs of recovery, as currency stabilization can be a bellwether for broader market normalization.

2. Energy Sector – Canadian Energy Indices

Canadian energy stocks have been impacted by the tariff announcements. Tariffs create uncertainty around margins and export pricing—forcing companies to absorb higher costs or pass them along to consumers—which have put downward pressure on stock valuations. We believe that if trade tensions ease and the tariffs are rolled back or mitigated, market confidence in the energy sector will be restored, potentially leading to a rebound in Canadian energy stocks.

Suncor Energy and Canadian Natural Resources (CNR) are major players in Canada’s energy market, and a return to stable trade relations would likely provide a more secure outlook for these companies. In addition, Enbridge Inc.—a key operator of cross-border pipeline infrastructure—could benefit from more predictable cost structures and sustained long-term contracts. Imperial Oil, another cornerstone of Canada’s energy landscape, would similarly experience relief from tariff-induced cost pressures.

3. Industrial and Manufacturing Sectors

Export-driven industrials and manufacturers are directly impacted by cross-border trade policies. Prolonged tariffs can disrupt supply chains and dampen export growth, but a resolution would likely lead to improved export dynamics and operational efficiencies for these companies. We believe export-dependent industries could experience a rally once tariffs are lifted, making them potential beneficiaries of renewed trade stability.

As a major exporter in the automotive and industrial sectors, Magna International could see a rebound in export demand if tariffs are lifted and cross-border trade flows improve.

Final Takeaway

Investors should remain cautious yet prepared for a rebound in sectors that are likely to benefit from renewed stability in trade relations. Although the near-term environment is characterized by uncertainty and volatility, historical patterns and current diplomatic signals suggest that a compromise is within reach. Should a resolution be achieved, sectors such as the Canadian dollar, and energy/industrial stocks may see a recovery, offering potential opportunities for investors.